EdTech Companies & the Ambit of E-Commerce Entities Under the Consumer Protection Rules, 2020?
By: Malaya Joshi* |
On 23rd July 2020, the union government, under powers conferred by § 101 (2) (zg) of the Consumer Protection Act, 2019 (‘COPRA’), enacted the Consumer Protection (E-Commerce) Rules, 2020 (‘2020 Rules’) which aimed at regulating the e-commerce sector of our country. The need for such rules was mainly twofold. First, our country's e-commerce sector has witnessed exponential growth in the last decade in terms of both revenue and size, making our nation one of the fastest expanding E-commerce marketspaces in the world. Second, the Covid-19 pandemic had bolstered the growth of e-commerce platforms over the physical markets. In this paper, the author discusses the impact of Covid-19 on education technology. In doing so, the author analyses whether ed-tech companies fall within the definition of e-commerce entities and can be declared as a service under COPRA. Consequently, the discussion on the two models of e-commerce entities (Marketplace and Inventory-based) brings home the point that ed-tech companies fall within the ambit of e-commerce entities as given under § 3 (1) (b) of the 2020 Rules.
EDUCATIONAL TECHNOLOGY AND COVID–19
Richey defines educational technology as the study and ethical practice of facilitating learning and improving performance by creating, using and managing appropriate technological processes and resources. India's Ed-tech journey officially began in 1994 with the introduction of "Educomp". Around 2010, the country's education sector witnessed the entry of many Ed-tech start-ups into the market. The Ed-tech companies in India follow diverse business models. For instance, sub-licensing of Ed-tech platforms to Indian subsidiaries or supplying services directly to the customers, etc. The monetisation strategies followed by these companies also vary. For instance, a company may monetise through advertisement revenue or subscription revenue or franchisee income, or a combination of all.
"The key lesson for others may be to embrace e-learning technology before disaster strikes!"
Since the last decade, online education in India has already been a booming industry; however, due to the Covid-19 pandemic, the Ed-tech sector has witnessed unparalleled growth in a very short period. Universities and schools worldwide had no alternative but to acclimatise to deliver lectures/classes by utilising Ed-tech tools. Consequently, the world witnessed an upsurge in educational applications, hardware, and software solutions targeting remote learning. In March 2019, Byju's added 6 million new users in a single month. Other Ed-tech platforms like Unacademy, Udemy, Vedantu experienced a massive rise in their subscriber base due to the pandemic.
WHAT ARE E-COMMERCE ENTITIES?
The expression e-commerce is defined under § 2 (16) of the COPRA as "the selling or buying of goods or services including digital products over a digital or electronic network". The meaning of 'goods' and 'services' should be construed as per the definitions given under § 2 (21) and (42) of COPRA, respectively. Some vital expressions such as ‘digital products’ and ‘digital or electronic network’ have not been defined under the COPRA or the 2020 Rules. However, on a plain reading, it can be construed that the former would include software, application, e-books, etc., whereas an idea of what shall be included in the latter can be taken from S.15.2.3 (e) of the Non-Debt Instrument Rules (‘NDI’) 2019.[i] The rule states that it shall include television channels, a network of computers, and any other internet applications which are used in an automated manner.
'E-commerce entity' is defined under § 3 (1) (b) of the 2020 Rules. The definition provided thereunder can be divided into two parts. An E-commerce entity means:
I) Any person who owns, operates, or manages a digital or electronic facility or platform for electronic commerce
II) but does not include a seller offering his goods or services for sale on a marketplace e-commerce entity.
Interpretation of Part I:
According to § 2 (31) of the COPRA, a person includes: - a) an individual, b) a Hindu undivided family, c) a co-operative society, d) a firm irrespective of its registration status, e) an association of persons irrespective of their registration status under the Societies Registration act, 1860, f) any company, a body of individuals or corporation irrespective of its incorporation status, g) any artificial juridical person, who does not fall in any of the sub-clauses mentioned above. Therefore, anyone falling in either of the categories mentioned above will be a 'person'. For instance, company X owns and manages a website that provides services to its customers/users for a certain fee. Such a company will fall within the definition of an E-commerce entity. The definition uses the expression ‘any person’ which means that it includes both domestic and international entities. The term 'platform' is defined as an online interface in the form of any software, including a website or a part thereof and applications, including mobile applications. According to this definition, Diksha (App and website), launched by the government in 2017, is a platform.
Interpretation of Part II:
A ‘seller’ in Part II of the definition means a 'product seller' as defined under § 2 (37) of the COPRA. A marketplace e-commerce entity provides an information technology platform on a digital or electronic network to facilitate transactions between buyers and sellers. For instance, X manufactures hand-crafted carpets regularly and offers to sell those carpets on a website named 'Zekrom' for $ 500 each. Then, Y, a person in India, buys this carpet from this website. In this transaction, the website 'Zekrom' acts as a facilitator between X (the seller) and Y (the buyer). Now, as per the definition, X will not be an e-commerce entity.
WHETHER ED-TECH COMPANIES ARE E-COMMERCE ENTITIES?
In this section, based on the interpretation of Part I and Part II of the definition, the author asserts that Ed-tech companies fall within the ambit of e-commerce entities. The first condition is that it should be a person. As mentioned earlier, ‘any person’ includes a company (both domestic and international), irrespective of its incorporation status. The second condition is that the person should do any of the three mentioned below:
Own a digital or electronic facility or platform,
Manage a digital or electronic facility or platform or
Operate a digital or electronic facility or platform.
If the person (who is a company here) owns, manages, or operates a digital or electronic facility (as mentioned earlier, the meaning of the expression can be construed from S. 15.2.3 of NDI) or a platform (as per § 3 (1) (i) the 2020 Rules), then he will fulfil the second condition. In that case, the last condition is that the owned, managed, or operated digital or electronic facility or platform is utilised for electronic commerce, i.e., selling or buying of services or goods including digital products over that platform or digital or electronic facility. If an Ed-tech company fulfils all these conditions, it will be an e-commerce entity under § 3 (1) (b) of the 2020 Rules. The wide scope of the e-commerce definition has advertently or inadvertently covered Ed-tech companies within its ambit. Now, the Ed-tech companies will have to comply with § 4 of the 2020 Rules, which provide for duties, such as, entities should not impose any cancellation charges on the consumers cancelling after confirming purchase unless the entity itself incurs similar charges; appoint a grievance officer for consumer grievance redressal etc. that an e-commerce entity shall fulfil.
The 2020 Rules recognise two types of E-commerce models - Marketplace E-commerce and Inventory based E-commerce. Companies will have to decide their business models, as both models accompany different liabilities with them, and any violation of those would attract the provisions of the COPRA.
IS IMPARTING EDUCATION A SERVICE? A CONUNDRUM
Whether education institutes responsible for imparting education are rendering service under § 2 (42) of the COPRA has always been a matter of debate. Consequently, there exists a wide range of contrasting judgements on this issue. In this section, I assert that education imparted by Ed-tech platforms is service rendered under § 2 (42) of the COPRA.
In the case of UPES vs Anuj Kanwal, the National Consumer Dispute Redressal Commission (‘NCDRC’) addressed an imperative issue as to whether the coaching institutions fall under the definition of educational institutions. If the answer to this issue would have been affirmative, then the coaching institutions would fall outside the jurisdiction of the consumer forum, which would mean that coaching institutions like educational institutions were not rendering service as under § 2 (42) of the COPRA. However, the NCDRC held that coaching centres could not be considered equivalent to regular schools/colleges/universities which are regulated by a Regulatory authority and confer a diploma or a degree on the student who passes the examination conducted as per the norms and rules specified in the statute and of concerned universities. Consequently, the coaching institutions can now be sued for deficiency of service under § 2 (11) the COPRA. A similar ratio was delivered recently in the cases of L.B.S. Group of Education Institute v Arjun Singh & Others, FIIT JEE Ltd. v Jaipreet Singh Kaushaland Niit Institute for Finance Banking ltd. v Abhishek Tiwari. Therefore, it is now settled that deficiency or defect or unfair trade practice relating to a service provider like coaching centers fall within the jurisdiction of the consumer forum. Based on the ratio of aforementioned cases, we can conclusively claim that Ed-tech platforms such as Byju's, Unacadmey, Vedantu etc., are identical to coaching centres, as they neither are regulated by any authority nor do they confer any degree or diploma. Therefore, the education imparted by Ed-tech platforms are services rendered under § 2 (42) of the COPRA.
Rohtagi, in his article, comprehensively analyses various judgements of the courts and the consumer forums and concludes that a student is not a consumer and the service rendered by a university/college is not a service under the COPRA, while a university performs its statutory duties, whilst a student is a consumer and service rendered by the university/college is a service under the COPRA when a university performs its administrative functions associated with the statutory duties. This principle might prove beneficial for understanding the situation in which Ed-tech platforms/companies facilitate the transactions between the student and the university in online diploma/degree courses. For instance, X, an Ed-tech company, owns and manages a website/application named "IndoCourses". The website provides online certificate/diploma courses from 50+ prestigious universities. For example, IIT-Delhi offered an artificial intelligence course. According to the T&C, IndoCourses was responsible for delivering soft-copy of course books within three days of registration. Due to negligence on the part of IndoCourses, the soft copy reached the student after 20 days. The student can file a claim for compensation against X for deficiency of service. In the same scenario, the student can sue the university for deficiency of service if the service pertained to non-statutory duties such as issuance of a wrong certificate or incorrect mark sheet. However, he cannot sue if the university was performing its statutory duties, such as laying down rules for conducting examinations for the course.
MARKETPLACE E-COMMERCE ENTITY: THE CASE OF EDUKART
A marketplace e-commerce entity acts as a bridge between a buyer and a seller. Registered sellers list their services/goods on the website/application, expecting to find a prospective customer. A marketplace e-commerce entity does not possess any inventory and is prohibited from selling services/goods to prospective customers on its own. Various e-commerce giants like Flipkart, Myntra, Amazon, etc., operate on a marketplace e-commerce model. In addition, ed-tech platforms like Simplilearn and Edukart operate on this type of model.
EduKart provides a platform for online diploma, degree, and certificate courses from 30+ prestigious universities in India. It also provides online coaching for students who prepare for entrance exams and offers various online courses. EduKart provides an information technology platform on a digital network and acts as a facilitator between the buyers (the students) and the sellers (the universities). On Edukart, universities are registered sellers and offer online courses in accordance with the University Grants Commission (Online Education) Regulations, 2018. EduKart charges a fee upon the seller to provide it with its platform and facilitate the transaction. Furthermore, EduKart does not possess any inventory and restricts itself from selling services or goods to prospective customers.
INVENTORY BASED E-COMMERCE ENTITY: THE CASE OF BYJU'S
An inventory e-commerce entity is one which: - (a) owns the inventory of services or goods and sells such services or goods (including digital products) directly to the consumer and (b) includes single-brand retailers as well as multi-channel single-brand retailers.
Croma, Nature's Basket are examples of inventory-based e-commerce entities. These entities own the inventory and sell their goods/products to the consumer through an online portal, physical stores, and mobile applications. Unlike the marketplace model, the consumer directly buys the goods/services/products from the e-commerce entity itself and not through a facilitator. An inventory e-commerce entity is involved in every aspect of its business, such as running logistics, interfaces with consumers, managing the inventory, etc. An Ed-tech company such as Byju's, which curates its courses and sells such courses on its platform, falls within the ambit of an inventory e-commerce entity.
Think and Learn Pvt. Ltd. is an Ed-tech company that operates under the brand name of BYJU'S. Byju's provides a range of courses, starting from courses for Lower Kindergarten to coaching classes for preparation of competitive exams. It also has physical coaching centres. In 2015, the company launched its mobile application named 'BYJU'S: The Learning App'. A student can either enrol himself/herself through Byju's physical coaching centres or online registration or the Byju's Application. Byju's, apart from offering online and physical coaching classes, offers its own curated books for each offered course. Therefore, Byju's fulfils both the condition (a) and (b) as mentioned in the definition; hence it will fall under the definition of inventory e-commerce entity.
FREEMIUM MODEL: THE CASE OF UNACADEMY
The 2020 Rules will apply to those Ed-tech companies only that charge a fee for their courses/services/products offered. § 2 (42) explicitly states that "service does not include a service rendered free of charge". Therefore, an Ed-tech platform, say X, which offers courses for free on its website, will not have to comply with the 2020 Rules. Now, a pertinent question arises as to how will the rules apply to Ed-tech companies that follow a freemium model,[ii] whether the rules will be applicable only for their paid services or for all the services. For example, an ed-tech platform like Unacademy follows this type of model to increase its customer base.
Unacademy is a platform that provides preparation material for various educational entrance and professional exams.[iii] On the platform, a student can access most of the material free of charge. However, to learn from an expert in a field, attend their online classes and gain access to the best material, one needs to purchase a Plus Subscription from Unacademy. A person who utilises the free services offered by the platform cannot file a complaint against Unacademy, broadly for two reasons:
The free service available by the person is not a service under § 2 (42), as mentioned earlier. Since free service is not a service under the COPRA, the person cannot file for deficiency of service.
The person using free service will not be a consumer under § 2 (7) (ii) of the COPRA, as a consumer is a person who "hires or avails of any service for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment" Since, there exists no quid pro quo in the transaction, a contract was never entered between the person and the platform. Without paying or promise to pay or partly paying the consideration, a person will not come under a 'consumer' definition.
We can conclude that the 2020 Rules have created a more rigid and robust framework for protecting the rights of consumers and the interest of all the stakeholders by modulating the activities of the e-commerce entities. Though the 2020 Rules were primarily devised to regulate the conventional e-tail businesses, the broad definition of the expression "e-commerce entity" has advertently or inadvertently covered Ed-tech companies within its ambit. Before these rules, the Ed-tech industry was largely unregulated, so the importance of such regulations cannot be overstated. These rules will organise the industry and bring the online consumers at par with the conventional consumers. However, Ed-tech companies will now be required to select either of the two e-commerce models, as recognised by the rules, to comply with these rules. Foreign Direct Investment that a company receives will also depend on the e-commerce model it chooses; therefore, it will be an arduous task. Moreover, several vital terms like digital products, electronic or digital facility, are not defined in the Rules. Accordingly, these terms need to be interpreted by their literal meaning or interpretation from other statutes or judicial pronouncements. Thus, the analysis clearly proves that Ed-tech companies fall within the ambit of e-commerce entities as given under § 3 (1) (b) of the 2020 Rules.
* Note: - This post was first submitted to the Corporate Law Society of National Law University, Jodhpur.
* The author is a student at West Bengal National University of Juridical Sciences, Kolkata.
[i] E-Commerce entities/platforms with Foreign Direct Investment (FDI) are presently regulated 15.2, Schedule 1, of the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019. Hence, the author is relying on S. 15.2.3 of NDI to interpret “digital or electronic network”.
[ii] A Freemium model is a revenue model in which a company provides basic features of its platform free of charge and certain additional features, such as a doubt clearing session or an in-depth analysis of a mock test, etc., in consideration for a specified fee.
[iii] Parisha Bhatia et al., Review of Data Privacy Laws and Case Study, 8 IJCRT 2923, 2924 – 2925 (2020).